AVESCOGROUPPLC ANNUAL REPORT 2009 31
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IFRS 2 (amendment), 'Share-based payment' (effective from 1 January 2009). It deals with vesting conditions and cancellations. It clarifies that vesting conditions
are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. These features would need to be
included in the grant date fair value for transactions with employees and others providing similar services; they would not impact the number of awards
expected to vest or valuation thereof subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the same accounting
treatment. The Group and Company will apply IFRS 2 (amendment) from 1 October 2009, subject to endorsement by the EU. It is not expected to have a material
impact on the Group or Company's financial statements.
IFRS 2 (amendments), 'Group cash-settled share-based payment transaction (effective from 1 January 2010)'. In addition to incorporating IFRIC 8, 'Scope of IFRS 2',
and IFRIC 11, 'IFRS 2 - Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of group
arrangements that were not covered by that interpretation. The changes are not expected to have a material impact on the Group or Company’s financial
statements. The Group and Company will apply IFRS 2 from 1 October 2010 subject to endorsement by the EU.
IFRS 3 (revised), 'Business combinations' (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations,
with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent
payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the
non-controlling interest in the acquiree either at fair vale or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related
costs should be expensed. The changes are not expected to have a material impact on the Group or Company’s financial statements. The Group and Company
will apply IFRS 3 from 1 October 2009.
IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment is part of the IASB’s annual improvements project published
in April 2009. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified
as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1 still apply, particularly paragraph 15 (to achieve a fair
presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. The changes are not expected to have a material impact on the Group or
Company’s financial statements. The Group and Company will apply IFRS 5 from 1 October 2009 subject to endorsement by the EU.
IFRS 7 ‘Financial instruments – Disclosures’ (amendment) (effective from 1 January 2009). The amendment requires enhanced disclosures about fair value
measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The
Group and Company will apply IFRS 7 from 1 October 2009.
IFRS 8 ‘Operating Segments’ (effective from 1 January 2009.) IFRS 8 requires that entities adopt the ‘management approach’ to reporting the financial performance
of its operating segments. This means that information will be reported in respect of those components of an entity for which separate financial information is
available which management use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The amount of
each operating segment item to be reported is the measure reported to the chief operating decision maker, which in some instances will be non-GAAP. The
standard will require explanation of the basis on which the segment information is prepared and a reconciliation to the amount recognised in the consolidated
financial statements. The Group and Company will apply IFRS 8 from 1 October 2009.
2.2 Basis of consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group (directly or indirectly) has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are excluded from the consolidation from the date on which control ceases.
The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of
the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the
identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement for the period (see Note 2.7).
Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Subsidiaries’ accounting policies have been changed where necessary to ensure
consistency with the policies adopted by the Group.
(b) Transactions and Minority Interests
The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests
result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference
between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary.
(c) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50%
of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s
investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 2.7).
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement for the period, and its share of post-acquisition
movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does
not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Associates’ accounting policies have been
changed where necessary to ensure consistency with the policies adopted by the Group.
Dilution gains and losses arising in investments in associates are recognised in the income statement.
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